Williams trades higher despite news

Plus, Duke downgraded; Noble Corp. upgraded

By

LisaSanders

NEW YORK (CBS.MW) - Williams slashed its 2002 earnings estimates Monday on the back of a Moody's downgrade, while Merrill Lynch cut its rating on Duke Energy, beginning another week with negative news from the merchant energy sector.

Last week, pessimistic news poured out of the sector beginning on Monday with Williams
WMB, -1.05%
which was forced to defend itself against claims of illegal dealings in California, and El Paso
EP, -2.86%
whose treasurer, Charles Dana Rice, committed suicide. See story.

On Friday, Duke Energy
DUK, +0.67%
said that the Securities and Exchange Commission is looking into the issue of "round-trip" trades at the company. After an investigation, Duke found only three of the trades, none of which served to boost revenue, volume or prices, the company said.

On Monday, Merrill Lynch downgraded Duke's intermediate-term rating to "neutral" from "buy," since the business environment in which the company operates is growing more volatile by the day.

"Duke's competitive position vs. peers remains strong, and we...expect the company to be a strong longer-term survivor of turmoil in the energy merchant sector," wrote analyst Steven Fleishman.

"In the near-term, however, we believe risks are on the downside...particularly for those like Duke, which are exposed to the headline and investigation risks related to the California markets."

Also Monday, Williams cut its 2002 earnings estimate to a range of $1.35 to $1.70 a share from $2.15 to $2.30 a share. In addition, the company said it's reducing its commitment for its risk management and hedging business to $1 billion, down from $1.5 billion, and actively seeking partners for the business. See full story.

On Friday, Moody's Investors Service cut Williams' corporate credit rating to Baa3 with a negative outlook. It's a precarious position for the firm, because Baa3 is just one notch above junk status.

Williams lost 11 cents to close at $8.59 after initial gains. Duke dropped 91 cents, or 3 percent, to close at $29.09. The Amex Natural Gas Index
XNG, -1.51%
a barometer of power generators, natural gas pipeline operators, and marketers, shed 1.7 percent to close at 161.22.

Last week, the Federal Energy Regulatory Commission targeted four energy firms for what it deemed uncooperative behavior. The agency is agency investigating whether power providers conspired to artificially inflate prices in California as the state was in the midst of an energy crisis. See full story.

On Monday, Fitch weighed in, saying that if the four were to lose their licenses, the FERC could order the companies to retroactively refund power prices that were "in excess of the cost-of-service rate...back to the date at which the company violated a FERC guideline or charged unjust or unreasonable prices."

In commodities trading, July crude lost 46 cents to settle at $24.29, and July natural gas retreated by 6.9 cents to settle at $3.135 per million British thermal units. See Futures Movers.

In the oil service sector, Noble Corp.
NE, -2.15%
lost 46 cents to settle at $40.16. The group was trading mostly lower Monday as evidenced by the Oil Service Index
OSX, -1.28%
which shed 3 percent to stand at 96.54.

Merrill Lynch analyst Kevin Simpson upgraded the intermediate-term rating on Noble to "strong buy" from "buy," noting the 12 percent pullback in the stock since a late April high $45.95.

"We have long considered NE the best long-term investment among the offshore drillers, due to the company's consistently above-average returns and its ability to increase earnings power from cycle to cycle," he wrote.

In the utility group, Exelon Corp.
EXC, +0.41%
reaffirmed its 2002 earnings outlook. The electric utility still expects to earn between $4.55 and $4.85 for the year. Shares added 65 cents to close at $52.50. The Philadelphia Utility Index
UTY, +0.48%
rose by 0.6 percent to close at 310.70.

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